Mondelez goes premium with Tate’s buyout

Mondelez (MDLZ) announced on Sunday that it has decided to buy New York-based Tate’s Bake Shop for $500 million. With Tate’s deal, the food giant forays into the premium cookie segment, which has been witnessing robust growth. Mondelez expects to close the deal by summer. Tate’s is synonymous with consumers for making crispy cookies, with its Chocolate Chip biscuits enjoying a special brand value.

For CEO Dirk Van de Put, this is the first deal under his leadership of the Oreo maker. Last year, Van de Put took over the food giant from Irene Rosenfeld, who has been under the helm for more than a decade. She has been under tremendous pressure from investors for failing to arrest the sales slump, forcing her to pass the baton to Van de Put.

Health shift not healthy for candy makers

Mondelez along with its peers has been struggling to grow its top line for some time. US consumers are becoming more health conscious, and as a result, their preferences have changed. This resulted in dwindling sales for companies like Mondelez. In the recently reported quarter, Oreo maker’s sales rose 5.5%, but sales in North America dropped 1.3%. Tate’s deal comes at the right time for the food giant. The cookie maker is known for making biscuits using “natural” ingredients compared to other established players including Mondelez. This has been well received by consumers, even when the products are more expensive than brands like Oreo. According to Mondelez, Tate’s sales have grown four-fold over the last five years, which would bode well for the food giant.

The Oreo maker has decided to run the acquired company independently, with all things remaining sacrosanct. Van de Put plans to expand the reach of the premium cookie brands across the US. Market research firm Euromonitor pegged the US cookie market to be worth $10.3 billion in 2017, growing 3.4% for the past three years.

With new CEO under the helm, Mondelez is hungry for growth. Analysts believe the food giant might sell off brands that are not performing up to the mark, while gobbling up brands which are more attuned towards today’s consumer needs. For Van de Put and his team, this seems to be just the beginning.